Wednesday, July 08, 2009

WSJ Says Brown's Bailout Measures Have largely Failed

A reader has drawn my attention to THIS article from the Wall Street Journal, which pours a lot of cold water on the government's economic 'rescue'.
Six months after the U.K. government scrambled to launch new bailout measures for Britain's foundering banks and economy, several of those efforts are languishing with few takers.

In January, for example, the British government created a guarantee program meant to revive the dormant market for asset-backed securities. The program aims to spur purchases of banks' asset-back securities, or bundled consumer loans, by guaranteeing them for buyers.

The guarantees were made available in April, but since then, none of the major U.K. banks has issued a security with such a guarantee. Bankers say it is too expensive; the government says the program is under review. So far, no changes to its terms have been made, and the program is set to expire in October.

The flop is among several misfires by the U.K. government in recent months among programs that haven't drawn interest from the banks and businesses they were intended to help. An effort to give firms trade insurance, for example, has seen only limited participation. The same is true of a loan guarantee for small businesses, which has been disregarded because it requires owners to put their own collateral on the line.

The snubbed bailout programs are a testament to the difficult balancing act governments face when attempting to aid their financial sectors and economies: They don't want to give banks and businesses a free ride, but fail to accomplish anything if their terms are not attractive enough.

It's worth reading the article in full, because you can be sure that's what a lot of potential investors in the UK will be doing. I don't think it will be encouraging them to put their money into this country. I've said all along that restoring economic confidence is the main task of the government, as few people will want to risk their money in an economy which looks risky. The level of deficit spending is another factor in a potential investor's decision. Many still believe that our credit rating is in danger. If we lose our triple AAA rating then all bets will be off. It hardly bears thinking about.


Anonymous said...

You don't know what you are talking about.

Bugsmalone said...

I've spent most of the past 50 years in and around the banking trade as both banker and economist. But I was never part of the stupidity and greed fostered by Brown and Blair - some of us were well aware of what was happening but could do nothing about it (job, income, family, mortgage, pension, cowardice).

You can take it from me the economics mess we are in may be partly due to a global shambles but the UK is in a much worse situation than any other developed nation due absolutely to the incompetence and ignorance of these two muppets. Of course they weren't helped by the idiocies of Clinton and Bush but that's no excuse.

How any sane individual could ever again vote Labour is quite beyond me.

George said...

Sounds reasonable - Brown has been praised by many other sources for his management of the crisis but the WSJ's views are important as they are as or more likely to be read by investors than (e.g.) the IMF's reports.

I have to say though, I find (most) conservatives' refusal to acknowledge that this is very much primarily a failure of the banks, rather than Government's (or at the very least a joint effort) absolutely staggering. No one should pretend either that the Tories would have done it differently (perhaps we would have had a slightly lager lifeboat but a tsunami is a tsunami!) or that our credit rating would be in question if we hadn’t had to spend £150billion on our banks last year.

Jim Dodd said...


I have to say I like your site but it's hard to take you seriously when you uncritically post up pap like this.

First of all - can you conceive for a moment an article in a newspaper has the slightest bearing on whether or not "an investor" decides to put capital in a UK institution of project?

Secondly, consider the points the Schaefer and MacDonald are making -it's as if the Banks and their investors shouldn't bear a very heavy burden of the cost of the crisis. "Lloyds must absorb £25bn..." I would've thought they'd lose at least that over the years. It's substantial but so the reward for stability is vastly substantial.

Of course also there should be extra guarantees sought to help businesses secure additional lending.

Iain, you spend all this time worrying about government spending and then don't scoff at the suggestion the government guarantees unlimited loans to thousands of businesses??

Come on!

The Federation of Small Businesses remember, must be one of the most widely discredited organisations of all time if one were to go back and read their media releases over the years.

Let's have a little more thought Iain before we eagerly rush to put the boot into Ol' Gordo.

Anonymous said...

It doesn't quite say that the Bailout Measures have largely failed. Indeed it says:

"To be sure, the major programs the U.K. government has put in place to combat the financial crises are widely seen as successful."

Naughty Iain. I was excited for a moment.

Iain Dale said...

Actually, it's the WSJ saying this, not me. Are you saying they are not influential?

Anonymous said...

But thsi is in the WSJ.

Which is a Murdoch Mouthpiece.

And Mr Brown has fallen out of favoure with the Digger, so its just drip, drip, drip ...

Of course, this doesn't mean it isn't true:)

SHB said...

You should also look at Liam Halligan's piece in the Sunday Telegraph from 5th July.

Provides some insightful views as to why QE has failed to do what was intended and the potential grief that is yet to come.

Playing the blame game for what has happened serves no useful purpose at the moment. It has relevance to revamping the regulatory framework at some point, but doesn't address the 'now issues' of how to fix the damage.

Flemingcrag said...

Once Alistair Darling announces his ideas to make sure we have no more bank failures, investor confidence is bound to grow by leaps and bounds....Isn't it???

Straight from the Treasury font of genius that brought us the endogenous growth theory we now have macroeconomics. What is it? Well it's an aspiration but, applied by the firm hand of Labour Government it has to be a winner.

How do you apply it? Well the Government puts it as a suggestion, this is only right, the fact we are the majority stakeholder in most banks does not mean a Labour Government can actually impose this measure.

How does it work? Well in the good times you suggest to the banks they build up their money reserves so that when times turn nasty they can weather the economic downturn.

I think the Government might have got the idea from all those people who have pointed out this is exactly what Gordon Brown did not do.

This fact should not diminish investor confidence, it is simply another example of Labour saying don't do as we do, please do as we suggest you do....Investor confidence restored...nothing to see.. move along now.

Man in a Shed said...

@ July 08, 2009 11:07 AM , Anonymous Anonymous - Labour's astroturfing is very quick these days.

Straight from the A Campbell dirty play book- or are you Damian McBride in disguise ?

Does Labour now have someone watching Iain's site 24/7 to make sure they're first in with the spin ?

This article from the WSJ must really worry you.

David said...

Japan lost their AAA rating years ago and it made no difference whatsoever. I have absolutely no time for this Government but I do think last October to January were "try anything" time. People forget that the vast majority of FDR's new deal proposals were also a failure within a few short years but action changed the mood. I would give Brown a respectable 2/5 for tactics in the crisis: it is the 0/5 in prudence leading up to it that is going to affect the living standards of us all over the next decade.

Jim Dodd said...

You were (I think) suggesting that this article may have a negative bearing on a capital investment decision by an institutional or private investor.

I find that an extraordinary proposition that such a decision would even be marginally influenced by an article that reads like it was briefed to a journalist (a day ahead of a UK bank reform announcement).

You are right in that it isn't "encouraging investors" but I'm saying anyone with any sense of how PR and PA works (which you undoubtedly do) will feel the hand of a Bank Press Officer or briefing.

I'm accusing you - perhaps very unfairly - that you saw that it was criticism of our Dear Leader in a respectable publication and therefore worthy of space on your pages.

Personally, I'm worried about the level of debt but I'm not one for blanket and thoughtless criticism - especially when dolloped out to me by a timed, PR placement.

I don't think you are either which is why I posted my unflattering thoughts.

I hope that doesn't seem too unfair.

Alex said...

Iain, This is not new, the rest of the financial press have been covering this for onth's but in a low key way, not wishing to rock the boat.

The issue should be self evident, which is that despite the fiscal stimulus that Brown has been pursuing since before the banking crisis, the private sector is shot to pieces. After responding to some stimulus between 2000 and 2003, it has now fallen to a level below 1997 in inflation adjusted terms.

Brown's credit schemes for the private scetor were never going to work because

(a) the government was never going to lend on more favourable terms than the banks, and
(b) the competitiveness of British industry had been eroded to a level where the provision of credit on its own is not enough.

JBW said...

Interesting financial commentary from here:


Blaad said...

ardless of whether the WSJ is correct or not.

Overseas businesses will be examining our economy very carefully before making the invest / don't invest decision.

They'll also be fearful of what may happen to corporation tax levels before deciding where to place their overseas investment.

Anonymous said...

Yes it is worth reading the article in full since it doesn't say that the "bailout measures have largely failed". In fact it says the following:

"To be sure, the major programs the U.K. government has put in place to combat the financial crises are widely seen as successful. That includes the government's flagship move: its £37 billion ($60 billion) infusion of cash directly into three of the country's largest banks last October. A £250 billion debt guarantee for banks has also been widely used and credited with helping stem the confidence crisis last fall."

Which is pretty much the opposite of your conclusion I'm afraid.

It does talk about how certain schmems have not been taken up - and attributes this to the owners of small and medium sized businesses not being willing to give their own personal guarantees in addition to those being provided by the Government. Unfortunately, I don't see this as being an unreasonable request. On the other hand perhaps Tories now believe in the government guaranteeing loans to such companies, entirely at the tax payers risk rather than owners of such businesses also bearing some of the risk themselves - but somehow I doubt it.

Clearly this post would appear to be a product of the inspirational leadership provided to you by Lynton Crosby at lunch yesterday. Just imagine what you would say about any newspaper or blogger who referred to the inspirational leadership of Alastair Campbell or Philip Gould. But anyway at least we now know who is giving the orders!

gordon-bennett said...


You seem to have forgotten that it was brown's disastrous decision to meddle with the existing bank regulation system early in his Chancellorship that has caused the extra impact that the global recession has had on the UK economy.

The mess we are in is primarily a failure of regulation before it is a failure of banks. The Conservatives would not have found themselves in such a mess as labour has created - they wouldn't have introduced the tripartite regulatory system.

Jimmy said...

A WSJ op-ed critical of Labour? Whatever next? A piece critical of the Democrats?

Anonymous said...

Gordon Bennet

You are right that the Tories wouldn't have intriduced a tri-partite regulatory system. Guess how many regulators there were before the FSA?

Any advance on 13?

I also think that you will find that the Tories were even more in favour of deregulation than Labour.

Charles said...

Anonymous @1.25

That is misleasing rubbish and you know it.

The legacy regulators were consolidated into the FSA to increase simplicity through the abolition of the self-regulating organisation for various city business activities.

The tri-partite system was the split of the fundamental banking regulation between the Bank of England, the FSA and the Treasury. Totally different and utterly stupid.

The Purpleline said...

Until we get to grips and restrict banks in size the dangers to our economy are immense. The UK banks are too big for the country; they should be limited to a maximum balance sheet of 1% GDP of their domestic country.

Then create competition by establishing and permitting other domestic banks to open up.

Make UK banks that want to be hybrid Investment Bank/global banks create subsidiary companies with limited liability protection on the capital of the UK retail bank balance sheet, the rest of the capital they use or put at risk, they must obtain from investors in Capital bonds, that reward the investors not just the staff.

This also stops pension funds and normal investors being hurt when things go wrong as in the case of Lloyd’s bank shareholders who had their bank robbed by Browns stupid political manoeuvrings.

There should be regional banks created by local people that concentrate and help their own towns and cities. The Essex bank could be a good model if constructed properly a local bank would only be licensed to invest in local business and local housing projects, permitted to take local deposits to lend to local people.

Finally, the greatest Darwinism element of capitalism is failure & success banks, should be allowed, like other businesses to fail. This would not be a problem, if there were smaller & more of them. Investment banking divisions should be ring fenced from their parent retail bank, then if they get the markets wrong or their risk management wrong, they fail. Like Darwin it should be the survival of the fittest bank that survives.

I also believe we should go back to the old style consortium banks, for investment banking giants, this would allow the UK to establish a prime investment bank owned by HSBC,BARCLAYS,LLOYDS, RBS. Then Gordon Brown would have no need to use Goldman Sachs for UK government business.(But he will get a job there, so guess he wont sanction the move)

tapestry said...

The cash requirements to fund Brown's government this year are over GBP 600 billion (up GBP 150 billion or so on previous year) - while tax receipts are down so far by GBP 50 billion, creating a GBP 225 or so billion hole.

The GBP 225 billion shortfall cannot be financed by selling gilts as there are not enough buyers.

The BoE is buying the issued government stock, on the assumption that it will be able to move on the gilts when the market for British government debt recovers.

The problem is that tax revenues are showing no sign of recovering, in fact the opposite is happening, they are still falling. No one knows how much next year's shortfall will be as the bank rescues that keep happening are effectively a blank cheque.

When Brown took over Britain's annual spend in 1997, it was fully funded by tax at around GBP 1 billion a day.

It is now well on its the way to being GBP 1 billion a day added to Britain's debt.

If the full account for unfunded pensions, unfunded PFI spends are added to the possible requirements to pay off banking debts and losses, Britain is well and truly bust.

Don't worry about Triple A status. Worry about the Pound at 80 cents to the US Dollar. Nothing to with inflation this time, but with a completely bankrupt government.

They are morally bankrupt as of now. Financially will follow soon enough.

Anonymous said...


Not all the merged regulators were SROs - some were statutory regulators e.g the Building Societies Commission and the DTI.

The BoE also very much split banking supervision and market regulation - with the former being very much the poor relation. Quite often the market knew about problems well before banking supervision - look at BCCI if you want an example. Yes there has to be co-ordination between those regulating markets, individual institutions and government - but there are also some good arguments for keeping the functions separate (which even most Tories would appreciate), and please don't pretend that all in the garden was lovely before 1997 - it wasn't. Tri partite regulation is necessary I'm afraid unless you want a real monster of a regulator - the question is really one of doing it properly rather than the trite soundbites which emanate from Cameron and Co.

One point of interest is what has happened to all the building Societies which demutalised (Halifax, Abbey, Bradford and Bingley, Alliance & Leicester,Nothern Rock, Bristol and West) - perhaps Cameron and Co might want to admit responsibility for the Building Societies Act 1986?

Anon 1:25 and 12:52

Chris Paul said...

Anonymous 11:07 is spot on with:

You don't know what you are talking about.

The WSJ does not say what you say they do. It comments on some detailed elements of a world-beating bailout not being generous enough for the greedy gambling fraternity of the banking fraternity.

You quite simply don't seem to have read the piece or if you have to have understood it. You're headline is basically untrue.

LOL are giving you the benefit of the doubt.

George said...


Arguing that this isnt a failure of regulation in my eyes is as futile/disingenuous as arguing that this isnt a failure of the banks. I agree with you entirely here.

Are you saying that the tripartite system was the main reason for the financial crisis? Would the tories stopped the build up of derivatives and the growth of bank debts? When did they propose this?

Would they have stood against liberalisation of international finance, as encouraged by the US and UK and resisted by e.g. Spain?

I've never thought of the tories as more pro-regulation than labour. Appriciate any evidence you have to offer on this.

The Purpleline said...

July 08, 2009 11:51 AM

The reason Japan was not severely affected is because young man they are a creditor nation with a high savings ratio.

The UK is indebted, its people are fkd, it will need to go into the markets to sell Gilts to balance the books and guess what, we lose AAA status and we all pay more. That is why it is such a big deal you clown.

Anonymous said...

Presumably you will be blogging about this from the IMF too Iain?

Anonymous said...$1309516.htm

CEP: Gordon Brown puts Scotland first, not Britain

Tuesday, 07, Jul 2009 12:00

"On the occasion of the 10th anniversary of the Scottish Parliament last Wednesday July 1st Gordon Brown published an article in the Scottish Daily Record," stated Philippa Cullen of Lower Froyle in Hampshire in her end-of-month message to CEP members in the county.

"It reeked with Scottish nationalism. Coming from a British Prime Minister who should put Britain first and speak equally of each nation of Britain it was outrageous. Yet it was totally consistent with his written pledge of March 31st 1989 when as 'one of the leaders of Labour's campaign for devolution' he signed the Scottish Claim of Right vowing 'to make the interests of the Scottish people paramount in everything he said and did'. His government, he says, 'has never stopped focusing on delivering for the Scottish people'.

"In the article he celebrates 'Scotland’s rich and vibrant political history'. He talks of 'the bravery and brilliance of Scots in uniform', no mention of the English who make up the vast bulk of the British Army, Navy and Air Force. He describes how he 'had campaigned for a fairer future for Scotland' and how he had made policy that 'pays off for the Scots. Our decision to build two state-of-the-art aircraft carriers at shipyards including Govan, Scotstoun and Rosyth has secured thousands of jobs in Scotland and protected Scots' hard-earned savings'. He omits to mention that the preservation of shipbuilding jobs in Scotland had been at the deliberate expense of England's shipyards, particularly Devonport and Tyneside.

"He exhibits breathtaking effrontery by saying that 'the Scottish people rightly felt frustrated in recent decades as unpopular decisions were made on health, education and policing', while knowing full well that his fellow Scottish Labour MPs in the UK Parliament have taken away English MPs' choice on foundation hospitals and university tuition fees by voting against them and imposing these against English wishes.

"Unashamedly he boasts that the Scots can enjoy 'influencing decisions in Westminster' while making no mention of the West Lothian Question. He trumpets on about 'Scottish solutions to Scottish issues on things such as free personal care for the elderly, tuition fees, free travel for the elderly and prescription charges', as if England doesn't have exactly the same issues; and as if he is unaware, which he most definitely is not, that in terms of tax revenue it is the English taxpayer who pays for the extra benefits the Scots now enjoy. In terms of tax revenue Scotland is unable to pay its own way. 'The Union Government invests billions of pounds in Scotland beyond the Scottish Parliament’s £35 billion annual budget' he writes. What he does not write is that 90% of the Union Government's revenue comes the English taxpayer.

Because of devolution, Brown writes, 'Scots could finally start taking more control of our daily lives'. Note his use of the word 'our'. He smugly says "For the first time in 300 years, Scotland once again had its own parliament’. There is no fiercer opponent of England having its own parliament and the English having 'control of their daily lives'. than him; and he is using all the instruments of the British state to try to make sure it never happens. He boasts of 'hosting a working dinner in my home in Fife for leaders from all the Holyrood parties'. Would he ever as much as think of getting representatives of the people of England together 'to focus on delivering for the English people'?

As Brown so rightly says in the article, more truthfully than he realizes: 'In short, devolution gives Scotland the best of both worlds'

gordon-bennett said...


What is the purpose of regulators if not to preclude bank failure? They are first in line for preventing bank failure so if a failure occurs then they are mainly to blame. Luckily for labour, powerful msm such as the bbc are on their side and therefore refuse to make this point, which is why it's not widely appreciated.

This recession was caused by the sub-prime mortgage crisis arising from the exploitation of the CRA by Acorn and the ineptitude of democrat politicians like barney frank and chris dodd.

The point I make about labour is not that they caused the recession but that they made it worse for the UK by buggering up the (until then, settled) regulation system.

John Redwood, among other Conservatives, warned about this BACK THEN.

trevorsden said...

"Guess how many regulators there were before the FSA? "

Dear Mr Anon - the point is that the bans were solely regulated by the BoE before Brown changed things and split it between the FSA the BoE and the treasury.

This cats cradle failed its first test. The creating of the FSA is a different matter - the mistake was to give it a foot in the door to weaken the BoE's dealing with the banks.

The WSJ is a legitimate and serious commentator. Its criticisms ae valid. Its mention of 'successes' is small beer. Baling out the banks was easy - just eye wateringly expensive.

Anonymous said...

"Dear Mr Anon - the point is that the bans were solely regulated by the BoE before Brown changed things and split it between the FSA the BoE and the treasury."

No they weren't - their business activities were also regulated by the SIB and the SROs and they will have also had different regulators for their subsidiaries. And then the Bank had different departments responsible for market and bank supervision that had difficulties in talking to talking with each other (hence the collapse of BCCI even though most market participants knew it was dodgy months/years beforehand) and the Treasury/DTI were also involved reqgarding legislation and macroeconomic management.

Please don't pretend that the previous system was effective - it wasn't. Or that there is no need for tri-partite co-ordination between market regulators, pridential supervision and government - clearly the what we had wasn't perfect but only an idiot would deny the need for tri-partite co-ordination.

As for you comments on the WSJ article - please re read it - it is somewhat perverse is that their criticism is that some of the schemes did not get enough money out while yous is that they paid too much.

bladerunner86 said...

So are you against the fiscal stimulus Iain?

Alex said...

"Guess how many regulators there were before the FSA? "

For supervision of the sort of banking activity that brought the markets to a halt, just the one.

There is no reason to put the supervision of international banks into the same entity as mutual building societies or life assuranc salesmen.